17th Jan 2006 07:00
Pace Micro Technology PLC17 January 2006 Pace Micro Technology plc for the 26 weeks ended 3 December 2005 SALIENT POINTS • Shipments of 1.1 million set-top boxes (2004: 2.1 million); • Revenue of £78.9m (2004: £150.5m); • Loss before tax and restructuring costs of £8.9m (2004: profit £4.7m); • Diluted loss per share of 4.6p (2004: earnings per share of 4.3p); • Net cash position £13.6m (4 June 2005: £26.4m). All figures, including comparatives, are presented under IFRS. Pace Micro Technology's Chairman, Sir Michael Bett, commented: "Over the last six months Pace has won further new supply contracts withimportant digital TV operators around the world, continuing the momentum that isseeing Pace gain an increasing role in the payTV market in the developed world.Revenues are expected to improve significantly during the second half throughshipments to the US as well as Premiere in Germany, UPC in The Netherlands,Foxtel in Australia and Sky New Zealand. This growth will be offset somewhat asin the UK we expect units and revenues to continue to decline in the short-term. "The Board remains confident that Pace is well positioned for a solidperformance in the next financial year due to its growing customer base, demandfor new technologies such as high definition, MPEG-4 and multiroom and fromshipments into the US that are expected to be flowing strongly by then.Although short-term issues may impact immediate expectations, the Boardcontinues to be enthusiastic about the Group's position and is confident in theability of Pace's employees to progress our business." Chairman's Statement Over the last six months Pace has won further new supply contracts withimportant digital TV operators around the world, continuing the momentum that isseeing Pace gain an increasing role in the payTV market in the developed world.Shipments on these contracts are expected to commence in the remainder of thefinancial year. As announced on 16 December 2005, some short-term setbacks in new productintroduction and some shipment delays due to industry-wide component shortagesimpacted the Group's performance. Turnover for the half year to 3 December 2005was substantially reduced at £78.9m (2004: £150.5m), with a loss before tax andrestructuring costs of £8.9m (2004: profit £4.7m). Basic earnings per shareamounted to loss per share of 4.6p (2004: earnings per share 4.4p). Dilutedearnings per share amounted to a loss of 4.6p (2004: earnings per share 4.3p). An interim dividend is not declared (2004:nil). Trading review UK and EMEA In the UK, which is a maturing market, shipments decreased to 0.4 million boxes(2004: 0.5m). BSkyB remained an important customer as its Sky+ PVR servicecontinues to grow and there were ongoing shipments into UK cable. In continental Europe, Pace has worked with Premiere, Kabel Deutschland (KDG),Viasat and Sky Italia. Shipments were lower at 0.5m (2004: 1.9m), the reductionmainly due to the high level of boxes delivered to Sky Italia last year as partof its service launch. In Germany, Pace has continued to ship basic digitalset-top boxes to KDG and Premiere. Additionally for Premiere, Pace has recently launched a standard definition PVRand became the first supplier to deliver a certified set-top box for its highdefinition service. This set-top box is Europe's first to utilise the latestMPEG-4 compression technology, which enables more high definition channels to bedelivered within existing available bandwidth. Pace has commenced PVR shipments to Sky Italia and to Viasat in Scandinavia. Itis developing its first set-top box for delivery to UPC (part of Liberty GlobalInc) in The Netherlands following a contract win in June 2005. North America In the US, Pace is now close to seeing a return on the investment made by theGroup in this market over the last six years. This follows major contract winswith Comcast in May 2005 and DIRECTV in July 2005. Currently Pace is in thefinal development stages before delivery of the first products on both of theseimportant contracts. Pace's shipments to North America during the period increased slightly to 99,000units (2004: 75,000) and includes shipments to Rogers Cable and Videotron,Canadian cable operators. Asia Pacific In Asia Pacific, Pace continued to work with Foxtel in Australia and Sky NewZealand. Pace shipped PVRs for the Foxtel IQ service on both satellite andcable platforms and commenced shipments of the new Sky New Zealand PVR inDecember. New business was won with Galaxy Satellite Broadcasting in Hong Kong,Pace's first move into the Chinese market. Engineering and Operations The contracts Pace is currently working on reflect the important strategic movestaken by the Group over the last eighteen months to expand its worldwidecustomer base and shift the balance of shipments towards more advanced productsfor major payTV operators. The Pace engineering team is meeting a number ofchallenges in bringing this complex range of new products to market as quicklyas possible commensurate with having a reliable product. That this work is bothcomplex and needs first class engineering skills represents one of the majorbarriers to entry to our market. The management team has continued to drive initiatives to improve efficiency,cost-effectiveness and focus. In the last six months Pace has made furtherimprovements to its engineering development process that will enable the Groupto take greater advantage of outsourced engineering and manufacturing. Thiswork will help improve margins from current levels and deliver next generationproducts. The industry is presently constrained by a shortage of components. Thisaffected the shipments we expected to make in November. Although that shortfallhas been substantially made up, component availability remains as an issue inthe short-term. Future Technologies Pace continues to take a long-term view of its market. To ensure it is at theforefront of creating innovative new solutions for the digital home, Pace isincreasing investment in its technology programme. Products and technologiescurrently under development include high definition, multiroom, home networking,mobile, a solution to improve satellite signal distribution around apartment andsimilar buildings, bandwidth enhancements for cable operators, software toenable Open Cable in the US and devices that allow content to be delivered viabroadband in the home. These investments are expected to result in growth andhigher margin products in the coming years. Financial review The Board has previously discussed the impact of International FinancialReporting Standards (IFRS) and the figures and information contained in thisInterim Report have, for the first time, been prepared using IFRS as set out inthe accounting policies. Comparative figures for 2004 and 2005 have also beenadjusted and the full impact of IFRS changes is outlined in an appendix to thisdocument. As previously announced on 16 December 2005, the principal difference betweenIFRS and UK GAAP for Pace is the IAS38 requirement to capitalise developmentexpenditure and amortise that expenditure over the economic life of a product.Due to the product delays outlined above and the additional engineering resourcerequired to bring these products to market, the Board now expects a net increaseof over £7m in the amount of capitalised development expenditure over the year,of which £5.5m has occurred in the first half. Overheads (excluding restructuring costs on an IFRS basis) have decreasedslightly. Selling, general and administrative expenditure (excludingrestructuring costs) remained stable at £10.6m and engineering developmentcharges decreased, after the impact of the capitalisation of developmentexpenditure discussed above, to £9.4m (2004: £10.1m). As a percentage ofrevenue, total overheads excluding restructuring costs, were 25% (2004: 14%).The deterioration in this ratio is due to the shortfall in revenue in the lastsix months and is expected to reverse in the six months to 3 June 2006. Thegross margin of 13.5% is lower than the comparative period, reflecting thecompetitive environment and also partly as a result of the impact of reducedrevenue on fixed costs of sales and the strengthened US dollar. The grossmargin is also expected to improve in the six months to 3 June 2006. Net assets at 3 December 2005, excluding goodwill decreased to £51.2m (4 June2005: £60.3m). Net current assets were £35.6m (4 June 2005: £51.5m). Net cashbalances at the period-end were £13.6m (4 June 2005: £26.4m). Stocks at the period end amounted to £18.8m (4 June 2005: £10.1m), comprising£7.9m of raw materials and work in progress and £10.9m of finished goods.Debtors of £43.4m (4 June 2005: £51.8m) included insured balances of £35.0m(2005: £36.8m). The Group has arranged new bank facilities to cover its anticipated workingcapital requirements as the business builds in the second half. Chief Executive At the Company's AGM in September it was announced that John Dyson would retirefrom the Pace Board upon the appointment of a new Chief Executive. The searchis now reaching its final stages and the Board expects to make an announcementshortly. Outlook Revenues are expected to improve significantly during the second half throughshipments to the US as well as Premiere in Germany, UPC in The Netherlands,Foxtel in Australia and Sky New Zealand. This growth will be offset somewhat asin the UK we expect units and revenues to continue to decline in the short-term. In addition, the Board expects Pace's engineering capacity to expand throughimproved productivity, recruitment and the increased use of outsourcing, todrive more advanced product development and improve Pace's productcost-reduction cycles. A number of risks in completing the engineering development for the US shipmentsstill remain and the Group is committed to substantial orders of components tofulfil its delivery schedules and to provide a level of protection againstpossible component shortages. The Board remains confident that Pace is well positioned for a solid performancein the next financial year due to its growing customer base, demand for newtechnologies such as high definition, MPEG-4 and multiroom and from shipmentsinto the US that are expected to be flowing strongly by then. Althoughshort-term issues may impact immediate expectations, the Board continues to beenthusiastic about the Group's position and has confidence in the ability ofPace's employees to progress our business. Sir Michael BettChairman17 January 2006 CONSOLIDATED INTERIM INCOME STATEMENTFOR THE 26 WEEKS ENDED 3 DECEMBER 2005 Note 26 weeks ended 27 weeks ended 53 weeks ended 3 Dec 2005 4 Dec 2004 4 June 2005 £000 £000 £000 Revenue 2 78,940 150,547 253,326Cost of sales (68,288) (125,227) (199,812) _____________ _____________ _____________Gross profit 10,652 25,320 53,514 Administrative expenses: Research and Development expenditure (9,416) (10,147) (23,160) Other administrative expenses: Before restructuring costs and non-recurring (10,647) (10,627) (21,656)credit Restructuring costs 3 (970) - (325) Non-recurring credit 4 - - 180 _____________ _____________ _____________Total Administrative expenses (21,033) (20,774) (44,961) _____________ _____________ _____________Operating (loss)/profit (10,381) 4,546 8,553 Financial income 592 211 728Financial expenses (51) (92) (318) _____________ _____________ _____________(Loss)/profit before tax (9,840) 4,665 8,963 Tax (charge)/credit 5 (264) 4,896 4,717 _____________ _____________ _____________(Loss)/profit after tax (10,104) 9,561 13,680 _____________ _____________ _____________ Attributable to: Equity holders of the Company (10,104) 9,561 13,680 Basic (loss)/earnings per ordinary share 6 (4.6)p 4.4p 6.2p Diluted (loss)/earnings per ordinary share 6 (4.6)p 4.3p 6.1p All figures are unaudited. The figures for the period to 4 June 2005 have beenrestated from the audited UK GAAP figures presented on 12 July 2005, for whichan unqualified auditors' report was received. Details on the IFRS impact on theGroup's historical numbers are contained in an appendix to this document. CONSOLIDATED INTERIM BALANCE SHEETAT 3 DECEMBER 2005 3 Dec 2005 4 Dec 2004 4 June 2005 Note £000 £000 £000ASSETSNon Current AssetsProperty, plant and equipment 7,278 6,618 6,185Goodwill 9,436 9,436 9,436Intangible assets - development 12,972 8,318 7,450expenditureInvestments in other companies 777 200 674Deferred tax assets 4,009 3,958 4,009 ____________ ____________ ____________Total Non Current Assets 34,472 28,530 27,754 ____________ ____________ ____________Current Assets Inventories 18,822 17,611 10,135Trade and other receivables 43,413 67,868 51,827Cash and cash equivalents 13,864 11,688 26,647 ____________ ____________ ____________Total Current Assets 76,099 97,167 88,609 ____________ ____________ ____________ Total Assets 110,571 125,697 116,363 ____________ ____________ ____________ EQUITY Issued capital 11,487 11,347 11,349 Share premium 36,038 35,671 35,677 Cumulative translation adjustment 215 266 150 Retained earnings 12,868 18,086 22,576 _______ _______ _______ Total Equity attributable to equity holders ofthe parent 60,608 65,370 69,752 _______ _______ _______ LIABILITIES Non Current Liabilities 182 242 205Borrowings Provisions 7 9,310 10,602 9,304 _______ _______ _______ Total Non Current Liabilities 9,492 10,844 9,509 _______ _______ _______ Current Liabilities 35,274 43,040 31,561 Trade and other payables 220 628 49 Current tax liabilities 57 52 56 Borrowings Provisions 7 4,920 5,763 5,436 ____________ ____________ ____________Total Current Liabilities 40,471 49,483 37,102 ____________ ____________ ____________ Total Liabilities 49,963 60,327 46,611 ____________ ____________ ____________ Total Equity and Liabilities 110,571 125,697 116,363 ____________ ____________ ____________ CONSOLIDATED INTERIM STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Share Share Cumulative Retained Total capital premium translation earnings equity adjustment £000 £000 £000 £000 £000 Balance at 29 May 2004 11,339 35,647 - 8,152 55,138 Profit for the period - - - 9,561 9,561Employee share incentive charges - - - 371 371Issue of shares 8 24 - - 32Currency translation adjustments - - 266 2 268Balance at 4 December 2004 11,347 35,671 266 18,086 65,370 Profit for the period - - - 4,119 4,119Employee share incentive charges - - - 372 372Issue of shares 2 6 - - 8Currency translation adjustments - - (116) (1) (117)Balance at 4 June 2005 11,349 35,677 150 22,576 69,752 Loss for the period - - - (10,104) (10,104)Employee share incentive charges - - - 314 314Movement in employee share trusts - - - 82 82Issue of shares 138 361 - - 499Currency translation adjustments - - 65 - 65Balance at 3 December 2005 11,487 36,038 215 12,868 60,608 CONSOLIDATED INTERIM CASH FLOW STATEMENTFOR THE 26 WEEKS ENDED 3 DECEMBER 2005 26 weeks ended 27 weeks ended 53 weeks ended 3 Dec 2005 4 Dec 2004 4 June 2005 £000 £000 £000Cash flows from operating activities (Loss)/profit before tax (9,840) 4,665 8,963Adjustments for:Share based payments charge 314 371 744Depreciation of property, plant and equipment 1,960 2,198 4,419Amortisation of development expenditure 3,317 5,025 11,035Loss on sale of property, plant and equipment 72 - 1Net financial income (541) (119) (410)Movement in trade and other receivables 8,414 (6,890) 9,152Movement in trade and other payables 3,797 1,998 (9,046)Movement in inventories (8,687) (7,605) (129)Movement in provisions (510) (26) (1,653) _____________ _____________ _____________Cash (used in)/ generated from operations (1,704) (383) 23,076Interest paid (51) (67) (385)Tax paid (93) (69) (1,378) _____________ _____________ _____________Net cash (used in)/ generated from operatingactivities (1,848) (519) 21,313 _____________ _____________ _____________ Cash flows from investing activities Acquisition of trade investments (103) (200) (674) Purchase of property, plant and equipment (PPE) (3,090) (1,837) (3,594)Development expenditure (8,839) (6,709) (11,851)Proceeds from sale of PPE - 2 6 Proceeds from exercise of employee share options 82 18 29 Interest received 572 119 728 ____________ ____________ ____________Net cash used in investing activities (11,378) (8,607) (15,356) ____________ ____________ ____________ Cash flows from financing activities Proceeds from issue of share capital 499 32 40 Repayment of loans (22) (5) (38) ____________ ____________ ____________Net cash generated from financing activities 477 27 2 ____________ ____________ ____________ Net change in cash and cash equivalents (12,749) (9,099) 5,959 Cash and cash equivalents at start of period 26,647 20,705 20,705Effect of exchange rate fluctuations on cash held (34) 82 (17) ____________ ____________ ____________Cash and cash equivalents at end of period 13,864 11,688 26,647 ____________ ____________ ____________ NOTES 1 Basis of preparation Interim Financial Statements EU law (IAS Regulation EC 1606/2002) requires that the annual consolidatedfinancial statements of the company, for the 52-week period ending 3 June 2006,be prepared in accordance with International Financial Reporting Standards ("IFRS") adopted for use in the EU ("Adopted IFRS"). Consequently this interim financial information has been prepared on the basisof the recognition and measurement requirements of IFRS in issue that are eitherendorsed by the EU and effective (or available for early adoption) at 3 June2006, the Group's first annual reporting date at which it is required to useAdopted IFRS. Based on these IFRS, the directors have made assumptions aboutthe accounting policies expected to be applied when the first annual IFRSfinancial statements are prepared for the 52-week period ending 3 June 2006. The Adopted IFRS that will be effective in the annual financial statements forthe 52-week period ending 3 June 2006 are still subject to change and toadditional interpretations and therefore cannot be determined with completecertainty. Accordingly, the accounting policies for that annual period will bedetermined finally only when the annual financial statements are prepared forthe 52-week period ending 3 June 2006. An explanation of how the transition to IFRS has affected the reported financialposition and financial performance of the Group together with a summary ofsignificant accounting policies is provided in an appendix to this statement.This note includes reconciliations of equity and profit or loss for thecomparative periods under UK Generally Accepted Accounting Practices ("UK GAAP")to those reported for those periods under IFRS. The preparation of interim financial statements requires management to makejudgements, estimates and assumptions that affect the application of policiesand reported amounts of assets and liabilities, income and expenses. Actualresults may differ from these estimates. The note below "Business Environment"gives further detail on the nature of some these factors. These interim financial statements have been prepared under the historical costconvention as modified by the revaluation of derivative instruments. The interim financial information for the 26-week period ended 3 December 2005has not been audited, nor has the interim financial information for the 27-weekperiod ended 4 December 2004. The IFRS figures for the 53-week period ended 4June 2005 are not the Company's statutory accounts for the financial year.These accounts, which were prepared under UK GAAP, have been reported on by theCompany's auditors and delivered to the Registrar of Companies. The report ofthe auditors was unqualified and did not contain statements under Section 237(2)or (3) of the Companies Act 1985. Business Environment Strategy The Group continues to develop its set-top box strategy on three fronts: • To develop increasingly technologically advanced products • To match the geographic spread of its business with that of the global payTV operator market • To identify and exploit opportunities for additional recurring revenue streams Customers and Markets The global market for payTV products (primarily set-top box products) isgrowing, although concentrated within a limited number of operators, some ofwhich are currently in an unprofitable business development phase. The payTVmarket is attractive, and as with most modern markets, it is highly competitivewith Pace's competitors ranging from divisions of large multinationalelectronics companies to specialist smaller companies. There are a number ofbarriers to market entry, in particular a requirement for complexpost-deployment support to ensure deployed set-top boxes can continue to deliverover time a payTV service as this service grows in size and sophistication. Orders placed by Pace's payTV customers are typically large one-off orders fordelivery over a number of months with supplemental orders for additionalvolumes. As the eventual deployment of the set-top boxes can be unpredictable,revenues can be volatile. The difficulty in predicting Pace's business flow canbe exacerbated by a number of other factors including, for example, thedevelopment process for an advanced set-top box which can take over 12 months.The Group works on long lead times (e.g. four months) for component supply andmanufacture, typical of the industry. There are third party delivery risks, forexample, difficulties in the delivery of components or software code, and thefinal go ahead for manufacture is usually dependent on product approvals bothfrom the operator that has placed an order and from third parties. Inaddition, there is a strong customer demand for frequent design revisions thattake into account price deflation and introduction of new, more cost effectiveelectronic components. The revision process places increased demand onengineering resources but, at the same time, provides a further barrier to entryto new competitors. The combined impact of these factors, together with the need to meet customerdelivery requirements, imposes risk on Pace's product introduction programme. Currency Risks The standard 'industry currency' is the US dollar, with the majority ofcomponents and manufacturing capacity purchased in this currency. As a result,due to part of the Group's sales being in Sterling and Euros (the prices ofwhich will be fixed for months in advance), the Group remains exposed to therisk of foreign currency movements. To manage this risk, the Group's treasurypolicy is to progressively cover cash flows over a six month period, and to seeka greater percentage of US dollar sales to provide a commercial hedge againstcurrency exposures. Engineering The Group is dependent on the technological skills of its employees and isworking to increase the average skill base at all of the main development sites. At the same time Pace is seeking to outsource a larger part of its developmentand next generation cost down activity to independent development centres anddesign and manufacturing partners. During the year a significant number of newproducts for new customers have been developed. Development costs directlyattributable to these products are capitalised according to specified criteriaand amortised over the product life. The nature of the development work, andthe new product launch dates, will result in a significant capitalisation impactin this year. To improve business effectiveness, so the Group is better able to manage thesignificant volume of development work currently underway and in plan, there isa significant internal re-organisation programme in place. The programme, whichis nearing completion, has focussed on business processes; in particularimproving the effectiveness of Pace's development process and the ability of theGroup to outsource more development work. Third Party and Other Risks Pace provides product warranties for its set-top boxes. Although it isdifficult to make accurate predictions of potential failure rates or thepossibility of an epidemic failure, as a warranty estimate must be calculated atthe outset of a project before field deployment data is available, theseestimates improve during the lifetime of the product in the field. Pace's products incorporate third party technology, usually under licence.Inadvertent actions may expose Pace to the risk of infringing third partyintellectual property rights. Potential claims can still be submitted manyyears after a product has been deployed. Any such claims are always vigorouslydefended. The Group outsources its manufacture to third party specialist electronicsmanufacturers, in particular Solectron Corporation Inc. Solectron manufacturesa significant percentage of the Group's products at plants in Romania andShenzhen China, with a further plant in Mexico coming on line for Pace in thesix months to 3 June 2006. Regulatory Like all other businesses, the Group remains exposed to changes in theregulatory environment, including potential modifications in import dutyregimes, discussions on which have been and continue to be held. Within thisperiod, the Company has continued to manage the implementation of the EU WEEEand RoHs directives. Current Financial Position The Group has new bank facilities to September 2007, based upon 50% of relevanttrade debtors, up to a maximum of £50million. The Group is working on a number of major new projects for customers, completiondates for which have slipped from original plans, and for which customeracceptance will be required and is expected. To fulfil commitments to thesecustomers, purchase orders for components have been and continue to be raised.Further variations in timings could have a short-term effect on revenues,profits and working capital. The Board has built these circumstances into their working capital forecasts andmodelled a number of business scenarios. Based upon these, whilst recognisingthat there is some uncertainty, the Board has concluded that the Group hasappropriate banking arrangements and that therefore it is appropriate to use thegoing concern basis of preparation for these interim financial statements. 2 Revenue 26 weeks ended 27 weeks ended 53 weeks ended 3 Dec 2005 4 Dec 2004 4 June 2005 £000 £000 £000 The geographical analysis of revenue by destination is as follows: United Kingdom 40,064 58,043 106,269 Continental Europe 23,191 71,118 98,095 Asia Pacific 5,176 11,760 24,547 North America 10,509 9,245 23,531 Rest of the World - 381 884 ____________ ____________ ____________ 78,940 150,547 253,326 ____________ ____________ ____________ 3 Restructuring costs 26 weeks ended 27 weeks ended 53 weeks ended 3 Dec 2005 4 Dec 2004 4 June 2005 £000 £000 £000 Restructuring and reorganisation costs 970 - 325 ____________ ____________ ____________ The restructuring and reorganisation charges relate to an ongoing restructuring programme within the Group. 4 Non-recurring credit 26 weeks ended 27 weeks ended 53 weeks ended 3 Dec 2005 4 Dec 2004 4 June 2005 £000 £000 £000 Release regarding reference to Financial Services and Markets Tribunal - - (180) ____________ ____________ ____________ Previously the Company was party to a reference to the Financial Services and Markets Tribunal. Following the settlement of the matter in the 53 weeks ended 4 June 2005 a net release was made from the provision originally established. 5 Tax (charge)/credit 26 weeks ended 27 weeks ended 53 weeks ended 3 Dec 2005 4 Dec 2004 4 June 2005 £000 £000 £000 The tax (charge)/credit is based on the estimated effective rate of taxation on trading for the period and represents: United Kingdom corporation tax at 30% - - - Overseas tax (264) (110) (240) Adjustment in respect of a prior year (see - 4,860 4,760 below) Deferred tax - 146 197 ____________ ____________ ____________ (264) 4,896 4,717 ____________ ____________ ____________ Following the agreement of an outstanding Corporation Tax matter with the Inland Revenue in the UK, a one-off tax credit was taken in the 27 weeks ended 4 December 2004 in respect of a prior year. 6 (Loss)/earnings per ordinary share Basic (loss)/earnings per ordinary share have been calculated by reference to the (loss)/profit after taxation, and the average number of qualifying ordinary shares of 5p in issue of 220,428,226 (2004: 219,057,810). Diluted (loss)/earnings per ordinary share vary from basic (loss)/earnings per ordinary share due to the effect of the notional exercise of outstanding share options. The diluted earnings are the same as basic (loss)/earnings. The diluted number of qualifying ordinary shares was 224,995,218 (2004: 224,548,028). 7 Provisions Foreign exchange contracts Royalties Onerous Warranties Total marked to under contracts market negotiation (see below) £000 £000 £000 £000 £000 At 4 June 2005 113 6,440 1,026 7,161 14,740 Charge/(credit) for the period - 136 - 2,750 2,886 Utilised (113) (152) (895) (2,236) (3,396) ____________ ____________ ___________ ____________ ____________ At 3 December 2005 - 6,424 131 7,675 14,230 ____________ ____________ ___________ ____________ ____________ Due within one year - - 131 4,789 4,920 Due after more than one year - 6,424 - 2,886 9,310 The owners of patents covering technology allegedly used by the Group haveindicated claims for royalties relating to the Group's use (including pastusage) of that technology. Whilst negotiations over these liabilities continue,they are not concluded. The directors have made provision for the potentialroyalties payable based on the latest information available. Having taken legaladvice, the Board considers that there are defences available that shouldmitigate the amounts being sought. The Group will vigorously negotiate ordefend all claims but, in the absence of agreement, the amounts provided mayprove to be different from the amounts at which the potential liabilities arefinally settled. 8 Contingent liabilities Under the Waste Electrical and Electronic Directive producers of electricalgoods, including set-top boxes, are financially responsible for specifiedcollection, recycling, treatment and disposal of past and future electronicproducts. It is not currently possible to estimate the Company's existingliability or future expenses resulting from the related WEEE legislation, as theCompany awaits clarification from individual European member states of specificrequirements and policies. The Company was informed in the previous period of a potential claim from aformer customer relating to the supply of set top boxes in 2000/01 to a maximumliability of c£7.5m. The Directors believe that they have good defences to sucha claim and therefore, in the absence of any liability, no provision has beenmade. Circulation to shareholders Copies of this Interim Report will be sent shortly to shareholders and areavailable on application to the Registered Office: Pace Micro Technology plc,Victoria Road, Saltaire, Shipley, West Yorkshire, BD18 3LF. There will be an analysts' presentation on 17th January 2006 at 9.30am atCitigate Dewe Rogerson's office at 3 London Wall Buildings, London Wall, LondonEC2M 5SY. Appendix 1 - additional notes to the IFRS statements 1. Basis of preparation and summary of significant accounting policies Basis of preparation These interim financial statements have been prepared in accordance with theaccounting policies the Company expects to adopt in its 2006 annual report.These accounting policies are based on the IAS, IFRS and IFRIC interpretationsthat the Company expects to be applicable at that time. The IFRS and IFRICinterpretations that will be applicable at 3 June 2006, including those thatwill be applicable on an optional basis, are not known with certainty at thetime of preparing these interim financial statements. The Group's consolidated financial statements were prepared in accordance withUK GAAP until 4 June 2005. The Company has applied the same accounting policiesand methods of computation in these interim financial statements as thosepublished by the Group on 12 July 2005 within its 2005 Annual Report, except asexplained in notes 2 and 3 of this appendix, where the effects of changes inaccounting policies arising as a result of the adoption of IFRS are set out.Reconciliations between previously reported financial statements prepared underUK GAAP and the IFRS equivalents are presented for profit for the year ended 4June 2005 and the six months ended 4 December 2004 and net assets as at 4 June2005, 4 December 2004 and 29 May 2004. Further disclosures required by IFRS 1concerning the transition from UK GAAP to IFRS are also given in notes 2 and 3of this appendix. IFRS 1 provides certain optional exemptions from full retrospective applicationof all accounting standards effective at the Company's reporting date. Asdiscussed in more detail in the relevant sections below, the Company has takenadvantage of the exemptions relating to: business combinations, cumulativetranslation differences and share-based payment transactions. The Company hasnot taken advantage of the available optional exemption relating to fair valuemeasurement of financial assets and financial liabilities at initialrecognition. Use of estimates The preparation of financial statements in conformity with IFRS requiresmanagement to make judgements, estimates and assumptions that affect theapplication of policies and reported amounts of assets and liabilities, incomeand expenses. The estimates and associated assumptions are based on historicalexperience and various other factors that are believed to be reasonable underthe circumstances, the results of which form the basis of making the judgementsabout carrying values of assets and liabilities that are not readily apparentfrom other sources. Actual results may differ from these estimates. Principles of consolidation The consolidated interim financial statements incorporate the interim financialstatements of the Company and all its subsidiaries. Intra-group transactions,including sales, profits, receivables and payables, have been eliminated on theGroup consolidation. Subsidiaries Subsidiaries are entities controlled by the Company. Control exists when theCompany has the power, directly or indirectly, to govern the financial andoperating policies of an entity so as to obtain benefits from its activities. Inassessing control, potential voting rights that presently are exercisable orconvertible are taken into account. The financial statements of subsidiaries areincluded from the date that control commences until the date that controlceases. Business combinations The results of subsidiaries acquired in the period are included in the incomestatement from the date they are acquired. On acquisition, all of thesubsidiaries' assets and liabilities that exist at the date of acquisition arerecorded at their fair values reflecting their condition at that date. Goodwill All business combinations are accounted for by applying the purchase method.Goodwill represents the excess of the fair value of the consideration paid onacquisition of a business over the fair value of the assets, including anyintangible assets identified and liabilities acquired. Goodwill is notamortised but is measured at cost less impairment losses. In determining thefair value of consideration, the fair value of equity issued is the market valueof equity at the date of completion, and the fair value of contingentconsideration is based upon the extent to which the directors believeperformance conditions will be met and thus whether any further considerationwill be payable. As permitted by IFRS 1, goodwill arising on acquisitions before 29 May 2004(date of transition to IFRS) has been frozen at the UK GAAP amounts subject tobeing tested for impairment at that date. Goodwill is tested for impairmentannually. The Company performs its annual impairment review at thecash-generating unit level. For 2004, goodwill was assigned to thecash-generating units of the Group. The subsequent impairment test showed nogoodwill impairment. Research and development expenditure All on-going research expenditure is expensed in the period in which it isincurred. Where a product is technically feasible, production and sale areintended, a market exists, and sufficient resources are available to completethe project, development costs are capitalised and amortised on a straight-linebasis over the estimated useful life of the product concerned. The expenditurecapitalised includes the cost of materials, direct labour and an appropriateproportion of overheads. Where no internally generated intangible asset can berecognised, development expenditure is recognised as an expense in the period inwhich it is incurred. Capitalised development expenditure is stated at cost lessaccumulated amortisation (see below) and impairment losses. Amortisation Amortisation is charged to the income statement on a straight-line basis overthe estimated useful lives of intangible assets unless such lives areindefinite. Goodwill and intangible assets with an indefinite life aresystematically tested for impairment at each balance sheet date. Otherintangible assets are amortised from the date they are available for use. Theestimated useful lives for development expenditure are estimated to be in arange of between 6 and 18 months. Impairment charges The Company considers at each reporting date whether there is any indicationthat non-current assets are impaired. If there is such an indication, theCompany carries out an impairment test by measuring an asset's recoverableamount, which is the higher of its fair value less costs to sell and its valuein use (effectively the expected cash to be generated from using the asset inthe business). If the recoverable amount is less than the carrying amount animpairment loss is recognised, and the asset is written down to its recoverableamount. Revenue recognition Revenue is recognised to the extent that it is probable that the economicbenefits associated with the transaction will flow into the Company. Revenue comprises the value of sales of goods and services to third partycustomers occurring in the period, stated exclusive of value added tax and netof trade discounts and rebates. Revenue on the sale of goods is recognised when substantially all of the risksand rewards in the product have passed to the customer, which is usually upondelivery to the customer. Revenue in respect of services rendered, including engineering consultancy andsupport and software services, is recognised over the period over which they areperformed, in relation to the level of work undertaken, project milestonesachieved and any future obligations remaining. Government grants Grants in respect of specific research and development projects are credited toresearch and development costs within the income statement to match to theproject's related expenditure. Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits. The Companyconsiders all highly liquid investments with original maturity dates of threemonths or less to be cash equivalents. Bank overdrafts that are repayable ondemand and form an integral part of the Group's cash management system areincluded as a component of cash and cash equivalents for the purpose of thestatement of cash flows. Allowance for doubtful debts Trade receivables are assessed individually for impairment, or collectivelywhere the receivables are not individually significant. Movements in theprovision for doubtful debts are recorded in the income statement. Inventory Inventory is stated at the lower of cost and net realisable value. In general,cost is determined on a first-in-first-out basis and includes transport andhandling costs but excludes royalties due only on ultimate sale. Wherenecessary, provision is made for obsolete, slow-moving and defective inventory. Property, plant and equipment The cost of items of property, plant and equipment is its purchase cost,together with any incidental costs of acquisition. Depreciation is calculated so as to write off, on a straight-line basis over theexpected useful economic lives of the asset concerned, the cost of property,plant and equipment, less estimated residual values, which are adjusted, ifappropriate, at each balance sheet date. The principal economic lives used forthis purpose are: Long Leasehold properties Period of leaseShort Leasehold properties Period of leasePlant and machinery One to ten yearsMotor vehicles Four years Provision is made against the carrying value of items of property, plant andequipment where an impairment in value is deemed to have occurred. Leased assets Leases in terms of which the Group assumes substantially all the risks andrewards of ownership are classified as finance leases. Assets held under financeleases and hire purchase contracts are capitalised in the balance sheet anddepreciated over their expected useful lives. The interest element of leasingpayments represents a constant proportion of the capital balance outstanding andis charged to the income statement over the period of the lease. All other leases are regarded as operating leases and the payments made underthem are charged to the income statement on a straight-line basis over the leaseterm. Currency translation Transactions in foreign currencies are translated at the exchange rate ruling atthe date of transaction. Monetary assets and liabilities denominated in foreigncurrencies are translated at the rates of exchange ruling at the balance sheetdate. Exchange differences of a trading nature are dealt with in the income statement. Exchange differences on the restatement of the net investment in overseassubsidiaries and the difference between the income statement translated at theaverage rate and the closing rate are recognised directly as a separatecomponent of equity. Derivative financial instruments The Group uses derivative financial instruments, usually forward foreignexchange contracts, to hedge its exposure to foreign exchange and interest raterisks arising from operational, financing and investment activities. Inaccordance with its treasury policy, the Group does not hold or issue derivativefinancial instruments for trading purposes. However, derivatives that do notqualify for hedge accounting are accounted for as trading instruments. Derivative financial instruments are recognised initially at cost. Subsequent toinitial recognition, derivative financial instruments are stated at fair value.The gain or loss on re-measurement to fair value is recognised immediately inprofit or loss. However, where derivatives qualify for hedge accounting,recognition of any resultant gain or loss depends on the nature of the itembeing hedged. Taxes Current tax, including UK corporation tax and foreign tax, is provided atamounts expected to be paid (or recovered) using the tax rates that have beenenacted or substantively enacted by the balance sheet date. For the purposes ofinterim statements, the current tax charge is based upon a prudent expectationof the likely full year tax position. Deferred tax is provided using the balance sheet liability method, providing fortemporary differences between the carrying amounts of assets and liabilities forfinancial reporting purposes and the amounts used for taxation purposes.Deferred tax is measured using the tax rates that have been enacted orsubstantively enacted by the balance sheet date and are expected to apply whenthe asset is realised or the liability settled. A net deferred tax asset is recognised only when it is probable that sufficienttaxable profits will be available in the foreseeable future from which thereversal of the temporary differences can be deducted. Share-based payments The Company issues equity-settled share-based payments to certain employees.Equity-settled share-based payments are measured at fair value at the date ofgrant. Fair value is measured by use of the Black-Scholes pricing model. Thefair value determined at the grant date of the equity-settled share-basedpayments is expensed on a straight-line basis over the vesting period, based onthe Company's estimate of the number of shares that will eventually vest. The Company has applied the exemption available under IFRS 2, to apply itsprovisions only to those options granted after 7 November 2002 and which wereoutstanding at 1 January 2005. Employee share ownership plans The material assets, liabilities, income and costs of the Pace Micro Technologyplc Employee Benefits Trust and the Pace Micro Technology QUEST are consolidatedin the financial statements. Until such time as the Company's own shares vestunconditionally with employees, the consideration paid for the shares isdeducted in arriving at equity. Pension contributions Obligations for contributions to defined contribution pension plans arerecognised as an expense in the income statement as incurred. The Group has nodefined benefit arrangements in place. Investment income Investment income relates to interest income, which is accrued on a time basis,by reference to the principal outstanding and at the effective interest rateapplicable. Equity instruments Equity instruments issued by the Company are recorded at the proceeds received,net of direct issue costs. Dividends payable Distributions to equity holders are disclosed as a component of the movement inshareholders' equity. A liability is recorded for a final dividend when thedividend is declared by the Company's shareholders, and, for an interimdividend, when the dividend is paid. Provisions A provision is recognised in the balance sheet when the Group has a presentlegal or constructive obligation as a result of a past event, and it is probablethat an outflow of economic benefits will be required to settle the obligation. (a) Royalties A provision for royalties is recognised where the owners of patents coveringtechnology allegedly used by the Group have indicated claims for royaltiesrelating to the Group's use (including past usage) of that technology. Theprovision is based on the latest information available. (b) Warranties A provision for warranties is recognised when the underlying products orservices are sold. The provision is based on historical warranty data and aweighting of all possible outcomes against their associated probabilities. Thelevel of warranty provision required is reviewed on a product by product basisand provisions adjusted accordingly. (c) Restructuring A provision for restructuring is recognised when the Group has approved adetailed and formal restructuring plan, and the restructuring has eithercommenced or has been announced publicly. Provisions are not recognised forfuture operating losses. (d) Onerous contracts A provision for onerous contracts is recognised when the expected benefits to bederived by the Group from a contract are lower than the unavoidable cost ofmeeting its obligations under the contract. 2. Explanation of transition to IFRS The Company's financial statements for the year ending 3 June 2006 will be thefirst annual financial statements that comply with IFRS. These interimfinancial statements have been prepared as described in note 1 of this appendix. The Company has applied IFRS 1 in preparing these interim financialstatements. The last financial statements under UK GAAP were for the 53 weekperiod ended 4 June 2005 and the date of transition was therefore 29 May 2004.Presented below is the reconciliation of profit for the 53 week period ended 4June 2005 and the reconciliations of equity at 29 May 2004, being the start ofthat period ("Transition Date") and at 4 June 2005 (date of last UK GAAPfinancial statements) as required by IFRS 1. In addition, the reconciliation ofequity at 4 December 2004 and the reconciliation of profit for the 27 weekperiod ended 4 December 2004 have been included below as required by IFRS 1 toenable a comparison of the 2005 interim figures with those published in thecorresponding period of the previous financial year. For explanations of thenature and effect of the changes in accounting policies as a consequence of thetransition to IFRS, refer to note 3 of this appendix. (i) Reconciliations of UK GAAP profit and loss account to IFRS income statement 27 weeks ended 4 December 2004 (date of corresponding interim financial statements) UK GAAP Effect of transition to IFRS IFRS Unaudited Unaudited Unaudited Notes £000 £000 £000 Revenue 150,547 - 150,547Cost of sales (125,227) - (125,227)Gross profit 25,320 - 25,320Administrative expenses Research and development b (11,831) 1,684 (10,147)Other administrative expenses a, d (10,537) (90) (10,627)Total Administrative expenses (22,368) 1,594 (20,774)Operating profit 2,952 1,594 4,546Financial income 211 - 211Financial expenses (92) - (92)Profit before tax 3,071 1,594 4,665Tax credit 4,896 - 4,896Profit after tax 7,967 1,594 9,561 (i) Reconciliations of UK GAAP profit and loss account to IFRS income statement(continued) 53 weeks ended 4 June 2005 (end of last period presented under UK GAAP) UK GAAP Effect of transition to IFRS IFRS Audited Unaudited Unaudited Notes £000 £000 £000 Revenue 253,326 - 253,326Cost of sales e (200,704) 892 (199,812)Gross profit 52,622 892 53,514Administrative expenses Research and development b (23,976) 816 (23,160)Other administrative expenses a, d (21,621) (180) (21,801)Total Administrative expenses (45,597) 636 (44,961)Operating profit 7,025 1,528 8,553Goodwill write back a (360) 360 - Financial income 728 - 728Financial expenses (318) - (318)Profit before tax 7,075 1,888 8,963Tax credit 4,717 - 4,717Profit after tax 11,792 1,888 13,680 (ii) Reconciliation of UK GAAP profit to IFRS profit 27 weeks 53 weeks ended ended 4 December 4 June 2004 2005 Notes £000 £000 Profit after tax as reported under UK GAAP 7,967 11,792Adjustments for:Product development; capitalisation and amortisation b 1,684 816Share-based payments; expensed to profit or loss d (371) (744)FX contracts not revalued in period under UK GAAP e - 892Goodwill not amortised subsequent to Transition Date a 281 564Goodwill write back a - 360 Profit after tax as reported under IFRS 9,561 13,680 (iii) Reconciliations of equity and liabilities at 29 May 2004 from UK GAAP toIFRS As at 29 May 2004 UK GAAP Effect of transition to IFRS IFRS Audited Unaudited Unaudited Notes £000 £000 £000 ASSETS Non Current Assets Property, plant and equipment 7,010 - 7,010Goodwill a 9,436 - 9,436 Intangible assets - development b - 6,634 6,634expenditureDeferred tax assets f - 3,812 3,812 Total Non Current Assets 16,446 10,446 26,892 Current Assets Inventories 10,006 - 10,006Trade and other receivables 60,912 - 60,912 Cash and cash equivalents 20,705 - 20,705Deferred tax assets f 3,812 (3,812) - Total Current Assets 95,435 (3,812) 91,623 Total Assets 111,881 6,634 118,515 EQUITY Share capital 11,339 - 11,339Share premium account 35,647 - 35,647Retained earnings a,b,d,e 2,523 5,629 8,152Cumulative translation adjustment c - - - Total Equity attributable to equityholders of the parent 49,509 5,629 55,138 LIABILITIES Non Current Liabilities Borrowings 246 - 246Provisions f 20,748 (9,580) 11,168 Total Non Current Liabilities 20,994 (9,580) 11,414 Current Liabilities Trade and other payables 40,738 - 40,738Current tax liabilities 587 - 587Borrowings 53 - 53Provisions e,f - 10,585 10,585Total Current Liabilities 41,378 10,585 51,963 Total Liabilities 62,372 1,005 63,377 Total Equity and Liabilities 111,881 6,634 118,515 (iv) Reconciliation of equity and liabilities at 4 June 2005 from UK GAAP toIFRS As at 4 June 2005 UK GAAP Effect of transition to IFRS IFRS Audited Unaudited Unaudited Notes £000 £000 £000 ASSETS Non Current Assets Property, plant and equipment 6,185 - 6,185Goodwill a 8,872 564 9,436 Intangible assets - development b - 7,450 7,450expenditureInvestments in other companies 674 - 674 Deferred tax assets f - 4,009 4,009 Total Non Current Assets 15,731 12,023 27,754 Current Assets Inventories 10,135 - 10,135Trade and other receivables 51,827 - 51,827 Cash and cash equivalents 26,647 - 26,647Deferred tax assets f 4,009 (4,009) - Total Current Assets 92,618 (4,009) 88,609 Total Assets 108,349 8,014 116,363 EQUITY Share capital 11,349 - 11,349Share premium account 35,677 - 35,677Retained earnings a,b,d,e 14,825 7,751 22,576Cumulative translation adjustment c - 150 150 Total Equity attributable to equityholders of the parent 61,851 7,901 69,752 LIABILITIES Non Current Liabilities Borrowings 205 - 205Provisions f 14,627 (5,323) 9,304 Total Non Current Liabilities 14,832 (5,323) 9,509 Current Liabilities Trade and other payables 31,561 - 31,561Current tax liabilities 49 - 49Borrowings 56 - 56Provisions f - 5,436 5,436Total Current Liabilities 31,666 5,436 37,102 Total Liabilities 46,498 113 46,611 Total Equity and Liabilities 108,349 8,014 116,363 (v) Reconciliation of equity and liabilities as at 4 December 2004 from UK GAAPto IFRS As at 4 December 2004 UK GAAP Effect of transition to IFRS IFRS Audited Unaudited Unaudited Notes £000 £000 £000 ASSETS Non Current Assets Property, plant and equipment 6,618 - 6,618Goodwill a 9,155 281 9,436 Intangible assets - development b - 8,318 8,318expenditureInvestments in other companies 200 - 200 Deferred tax assets f - 3,958 3,958 Total Non Current Assets 15,973 12,557 28,530 Current Assets Inventories 17,611 - 17,611Trade and other receivables 67,868 - 67,868 Cash and cash equivalents 11,688 - 11,688Deferred tax assets f 3,958 (3,958) - Total Current Assets 101,125 (3,958) 97,167 Total Assets 117,098 8,599 125,697 EQUITY Share capital 11,347 - 11,347Share premium account 35,671 - 35,671Retained earnings a,b,d,e 10,756 7,330 18,086Cumulative translation adjustment c - 266 266 Total Equity attributable to equityholders of the parent 57,774 7,596 65,370 LIABILITIESNon Current LiabilitiesBorrowings 242 - 242Provisions f 15,362 (4,760) 10,602 Total Non Current Liabilities 15,604 (4,760) 10,844 Current liabilities Trade and other payables 43,040 - 43,040Current tax liabilities 628 - 628Borrowings 52 - 52Provisions f - 5,763 5,763Total current liabilities 43,720 5,763 49,483 Total Liabilities 59,324 1,003 60,327 Total Equity and Liabilities 117,098 8,599 125,697 (vi) Reconciliation of equity from UK GAAP to IFRS 29 May 4 December 4 June 2004 2004 2005 Notes £000 £000 £000 Total equity as reported under UK GAAP 49,509 57,774 61,851Adjustments for:Intangible assets; product development b 6,634 8,318 7,450 capitalisedFX contracts not revalued in period under e (1,005) (1,003) (113)UK GAAPGoodwill not amortised subsequent to a - 281 564Transition Date Total equity as reported under IFRS 55,138 65,370 69,752 3. Explanation of material adjustments to equity at 4 June 2005, 4December 2004 and 29 May 2004, and to profit for the year ended 4 June 2005 andfor the six months ended 4 December 2004 The transition to IFRS resulted in the following changes in accounting policies: a. Goodwill Goodwill is not amortised under IFRS but is measured at cost less impairmentlosses. Under UK GAAP, goodwill was amortised on a straight-line basis over thetime that the Group was estimated to benefit from it. The change does not affectequity at 29 May 2004 because, as permitted by IFRS 1, goodwill arising onacquisitions before 29 May 2004 (date of transition to IFRS) has been frozen atthe UK GAAP amounts subject to being tested for impairment at that date, theresults of which assessment indicated no such impairment. Under UK GAAP, goodwill on acquisitions prior to 1 July 1998 was eliminateddirectly against reserves. The gain or loss on the disposal of a previouslyacquired business reflects the attributable amount of purchased goodwill inrespect of that business. As the Group has opted not to restate businesscombinations prior to the date of transition, the goodwill written off toreserves under UK GAAP has been frozen and remains in reserves. During theperiod ended 4 June 2005, the Group completed the liquidation of Pace Italia srland goodwill previously written off to reserves of £360,000 was recycled to theincome statement and charged to the loss on disposal under UK GAAP. Thisadjustment is not required under IFRS with the result that no gain or loss fromthe liquidation of Pace Italia srl is reported in the IFRS income statement incontrast to the loss reported under UK GAAP. b. Research and development; IAS 38 Intangible Assets Under UK GAAP all expenditure on research and development was expensed asincurred. Under IFRS research expenditure is recognised as an expense asincurred but costs incurred on product development are capitalised as intangibleassets when it is probable that the project will be a success, considering itscommercial and technological feasibility, resources are available to completethe development and costs can be measured reliably. Other developmentexpenditures are recognised as an expense as incurred. Capitalised productdevelopment expenditure is amortised over the expected useful life. c. Other reserves As permitted by IFRS 1, the cumulative translation adjustment has been re-set tozero as at 29 May 2004. This has had no effect on net equity but has decreasedretained earnings by £473,000 as at 4 June 2005, 4 December 2004 and 29 May 2004with equal and opposite adjustments to the cumulative translation adjustmentreserve. d. Share-based payments The Group issues equity-settled share-based payments to certain employees. Inaccordance with IFRS 2, equity-settled share-based payments are measured at fairvalue at the date of grant, in respect of options granted after 7 November 2002and which were outstanding at 1 January 2005. The fair value determined at thegrant date of the equity-settled share-based payments is expensed on astraight-line basis over the vesting period, based on the Group's estimate ofthe shares that will eventually vest. Under UK GAAP, the charge recordedrepresented the difference between the share price at the date of grant and theexercise price of the option. In addition, the Group took advantage of anexemption under which no charge was made in respect of SAYE options. Thus,under UK GAAP, no charge was made in respect of share-based payments. e. Derivative Financial Instruments The IFRS standards relevant to the accounting for, and presentation of,financial instruments are IAS 32 Financial Instruments: Disclosure andPresentation, and IAS 39 Financial Instruments: Recognition and Measurement. Thedifferences between IFRS and UK GAAP which are immediately relevant to the Groupare the requirement to recognise all derivatives on the balance sheet (which arethen "marked-to-market" each reporting period to reflect their fair value), andthe detailed requirements that have to be met to qualify for hedge accounting. f. Balance Sheet reclassifications Provisions have been reclassified into amounts falling due within one year andamounts falling due after more than one year. Deferred tax assets have been reclassified as Non Current Assets. g. Exemptions IFRS 1 First-time Adoption of International Financial Reporting Standards setsout the transition rules, which must be applied, when IFRS is adopted for thefirst time. The standard sets out certain mandatory exemptions to retrospectiveapplication and certain optional exemptions. The most significant optionalexemptions available and taken by the Group are as follows: (i) Share-based transactions; the Group adopted the exemption in IFRS 1 whichallows a first-time adopter to apply the new standard only to share options andequity instruments granted after 7 November 2002 that have not vested by 1January 2005. (ii) Cumulative translation differences; under IAS 21 The Effects of Changes inForeign Exchange Rates cumulative translation differences within reserves arerecycled from equity to the income statement on disposal of a foreign operation.In order to eliminate the need to retrospectively apply this requirement, theGroup took the exemption to set cumulative translation differences to zero atthe date of transition. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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